IN A FINANCIAL capability survey implemented by the World Bank in 2014 as part of a broader engagement on enhancing financial consumer protection and financial education in the Philippines, a sample of 3,000 adults were asked to answer seven questions dealing with basic calculus and financial concepts (simple interest rates, inflation, compound interest, risk diversification and the main purpose of insurance products) to gauge their financial knowledge and basic numeracy skills.
The results were dismaying. On average, the respondents were able to answer only 3.2 out of the seven financial literacy questions correctly. And 10% of them got six questions right, and only 2% managed to get a perfect score.
“A more worrisome finding is that around a fifth of the surveyed population did not answer more than one question correctly, while still a significant proportion of respondents, one out of 10 adult Filipinos, did not appear to have a sound grasp of any of the basic concepts being tested,” The World Bank said in “Enhancing Financial Capability and Inclusion in the Philippines — A Demand-side Assessment,” which was released in 2015.
Filipino adults also performed poorly in the 2014 Global Financial Literacy Survey by Standard & Poor’s Ratings Services, in which several questions measuring four fundamental concepts for financial decision making — basic numeracy, interest compounding, inflation and risk diversification — were posed to more than 150,000 respondents in 140 countries.
To be deemed financially literate, the respondents needed to correctly answer “at least three out of the four financial concepts.” The survey found that only 25% of adult respondents in the Philippines were financially literate, a figure lower than the global average of 33%.
It’s evident from these surveys that the financial literacy of the Filipinos is lacking, and it should be a cause for great concern. “Financial literacy is a necessary life skill. The simplest human activity requires financing and life brings with it various risks. At the individual level, financial literacy, and its eventual translation into financial capability, enables us to save, prepare for the future, and manage economic/financial shocks,” Pia Bernadette Roman-Tayag, managing director of the Inclusive Finance Advocacy Office and the Financial Consumer Protection Department at Bangko Sentral ng Pilipinas (BSP), told BusinessWorld in an e-mail.
Mario A. Deriquito, President of Banco de Oro Unibank, Inc. Foundation (BDO Foundation), the corporate social responsibility arm of one of the biggest banks in the country, shares the sentiment. “Financial literacy enables people to manage their resources efficiently and responsibly, thereby ensuring a more stable future. Financially literate people have knowledge of financial products and services which enables them to make well-informed decisions,” he said in an e-mail.
Financially learned citizens with the ability to understand, select and use financial services that fit their needs can also be more effective partners of BSP in maintaining stable prices and ensuring a stronger, safer banking and payment systems and can productively contribute to the economy, Ms. Roman-Tayag noted.
Everyone needs financial education, regardless of their social status and age. But there are several groups that require a financial education tailored to their needs, and one of those groups comprises overseas Filipinos (OFs) and their beneficiaries. “OF remittances continue to provide support to the country’s economy as a major driver of domestic demand. The 2017 level of OF personal remittances accounted for 10% of GDP. Yet anecdotal evidence and general public knowledge indicate that many OF families struggle to meet their needs, when the OFs return home,” Ms. Roman-Tayag said.
The unbanked, low-income households, farmers, fisherfolk and micro, small and medium-sized enterprises are also an important financial education target. Ms. Roman-Tayag said they lack not only adequate awareness, but also appreciation and knowledge of formal financial transactions, particularly their benefits and risks. “To effectively on-board them in the formal financial system, and enable them to make prudent financial choices, they would need enhanced financial literacy and improved financial capability,” she added.
There’s one more group that needs a financial education that suits them — the youth. In the 2014 book Financial Education for Youth: The Role of Schools, the Organization for Economic Cooperation and Development notes that incorporating financial education into the formal school curriculum is one of the most efficient and fairest ways to reach a whole generation on a broad scale. “In addition, since the curriculum spans several years and can start as early as kindergarten, it is unique means to inculcate and nurture a sound financial culture and behaviors amongst future adults,” the organization adds.
To enhance the financial literacy of the Filipinos, BSP started an initiative called the Economic and Financial Learning Program (EFLP), which consists of 10 learning programs designed for specific audiences: children, college students, the working sector, investors, overseas Filipinos, and select unbanked sectors.
“We have developed about 46 learning materials, videos and brochures. We continue to share them with participants, with our partners, and on social media platforms,” Ms. Roman-Tayag said. “As of end-2017, we have conducted more than 30,000 learning programs in 79 out of 81 provinces, reaching 2.2 million participants. EFLP participants have rated the programs with an average of 4.7, with 5 as highest possible score. Based on the annual organizational scorecard of the BSP, we have always met targets in terms of program completion and participation rates.”
More recently, the central bank, the Department of Education (DepEd) and BDO Foundation joined forces to develop financial literacy materials for an estimated 24 million students and around 700,000 teaching and non-teaching personnel in more than 47,000 public schools nationwide.
“These materials, consisting of short videos, lesson plans, and discussion guides, are expected to make teaching and learning financial literacy more fun, interesting and engaging. They cover topics such as saving, investing, responsible use of credit, personal budgeting and financial management, and sharing,” Mr. Deriquito said.
“Although it is too early to talk about the project’s impact, BDO Foundation is excited about the project because of DepEd’s commitment to use the materials in regular classroom instruction and in regular teacher training programs, making its rollout rapid and wide-reaching,” he added.
The partnership forged by the three institutions can be a model for the kind of collaboration that the government and the private sector should have to better tackle the financial literacy issue. “BSP provides overall direction through its National Strategy for Financial Inclusion. BSP also contributes to the content and materials development. DepEd, on the other hand, handles the pedagogical aspect by incorporating financial literacy into the curriculum, contributing ideas into the development of the videos, developing the lesson plans and discussion guides, and actually rolling them out within the entire public school system. BDO Foundation, for its part, lends its expertise and financial resources to the project and handles overall project management,” Mr. Deriquito explained.
The National Strategy for Financial Inclusion he mentioned was launched in 2015 to optimize collective efforts toward financial inclusion in the Philippines. It provides a platform for the private sector to support the government in improving the financial literacy of the Filipinos through financial education. A tenet of the initiative is that a well-informed and adequately protected public is critical to realizing financial inclusion.
“We think that financial education, financial inclusion as well as consumer protection should be a collective responsibility. This is an issue which requires all hands on deck,” Ms. Roman-Tayag said. A hand from the media is certainly welcome.
“By simply proliferating financial education messages (e.g. prudent personal finance management), informing the public about their rights as financial consumers, and warning them against financial fraud and scam — the media can already impact the lives of Filipinos. The media may likewise take proactive roles by developing specific programs on financial literacy, for example soap operas, ads or other innovative programs that promote fin-ed messages,” Ms. Roman-Tayag said. — FATV